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The Business: Oil companies remain supine as Chavez grabs control of two fields

By Richard Orange
09 April 2006
VENEZUELA’S populist president Hugo Chavez loves nothing more than to rank himself alongside South America’s historical revolutionaries.
Last week, we were back in the 1970s. Chavez seized two oil fields from France’s Total and Italy’s Eni, the first time Venezuela, even under Chavez, has gone to such extremes since it renationalised its oil industry in 1976.
The national oil company, PdVSA, last weekend sent officials to the two fields, which produce a total of 85,000 barrels of oil a day (bpd), and took control.
More striking even than the seizures, though, has been the international oil companies’ spinelessness. Of the 22 oil companies whose deals Chavez announced he was rewriting in April 2005, only four – Exxon Mobil, Statoil, Total and Eni – have stood firm.
Exxon and Statoil sold their fields rather than capitulate to his demand that they turn
the agreements into joint ventures. The deadline was April this year. Total and Eni have ignored his demands.
Exxon has few worries. Venezuela accounts for 1.7% of its production, the loss of the field is less damaging than the potential loss of face internationally.
The question is how Total and Eni will react to the seizures. Patrick Esteruelas at Eurasia Group in New York argues that Total will throw in last-minute concessions and win back its Jusepin field. It has already yielded to some of Chavez’s terms, paying $19.4m (E15.7m, £11.0m) in plainly unjustified back taxes. And it has far more significant investments in Venezuela than Eni, with a large stake in the Sincor heavy oil field. Total has more incentives to capitulate – it doesn’t want to lose the chance to make more of Sincor. And Chavez needs Total more.
The 60,000 bpd Dacion field is Eni’s only real investment, and it has shown little willingness to yield to Chavez’s demands. Expect it to walk away, leaving a barrage of ugly lawsuits.
Chavez’s move in April 2005 part reversed the Apertura, or opening, of the mid-1990s, when Venezuela signed 32 agreements which gave international oil companies control of conventional oil fields for the first time since the 1970s. These fields produce 500,000 bpd.
In one regard, the oil companies’ willingness to let him get away with it justifies his move.Venezuela’s large oil reserves are obviously still attractive and Chavez has already increased royalties and hiked taxes on the companies from 34% to 50%.
But from another point of view the oil companies could bargain more agressively.
For all his rhetoric, Chavez cannot afford to repeat the renationalisation of the 1970s. Credit Suisse estimates that total foreign investment in Venezuela in 2005 dropped by almost three-quarters to $536m from $1.9bn in 2004. And output from the 32 fields run by foreign companies has fallen to around 460,000 bpd from roughly 500,000 bpd at the start of 2005.
And while Venezuela claims its output is 3.1m bpd, experts argue the reality is closer to 2.2m bpd, a big drop.
Chavez has been courting Chinese, Russian and Indian companies, but when it comes to developing Venezuela’s reserves of heavy oil, western companies like Total, Chevron and Royal Dutch Shell have the skills.
At today’s prices, Chavez can afford to take risks. Oil revenues surged 51% in 2005 to more than $48bn, leaving Venezuela with a current account surplus of $24.4bn. But if the price falls, Chavez may find himself forced to treat international oil companies a little more politely. read more

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The Business: Battle begins for Russia’s huge Arctic Sea gas field

By Richard Orange
09 April 2006
RUSSIAN gas giant Gazprom will this week begin deciding which of five international oil companies will win the right to take part in the largest single gas project of the next decade – the $25bn (E21bn, £14bn) development of the Shtokman field in the Arctic Sea.
Reports that Gazprom will announce the final consortium members on 12 April are premature, The Business understands. The final proposals – from Chevron, ConocoPhillips, France’s Total and Norwegian oil companies Norsk Hydro and Statoil – must first go to a working group led by Alexander Medvedev, director-general of Gazprom’s export arm, and Vlada Rusakova, head of Gaz-prom’s strategy department, which has been told to make a recommendation to Gazprom’s board within a fortnight.
Bidders have as yet received no commitment from Gazprom about when they will learn the result.
A banker advising one of the bidders said: “It’s an intensely political process. Gazprom is being instructed by the Kremlin so it will take time.”
The prize is huge. Shtokman’s 133 trillion cubic feet make it the third largest gas field yet discovered, with more reserves in one field than the UK and Norway have together. While its reserves make it irresistible to international oil companies, the challenges are immense.
More than 500km into the Russian Arctic Sea where the temperature is below freezing for nine months of the year, Shtokman is in one of the most forbidding environments on earth.
Gazprom has said it is looking for two to three partners, but has left it unclear as to whether any of these could themselves be consortiums. It has forbidden the companies from discussing groupings among themselves.
Of the five, Total and Conoco are seen as the most likely to be dropped, followed by Chevron. The Norwegians, given their expertise in the Arctic, are seen as the most certain. Gazprom chairman Alexey Miller last Thursday met Conoco chief executive Jim Mulva and Total chief executive Thierry Desmarest in what looked to be a final opportunity for the companies to make their cases.
Gazprom is expected to keep a 51% stake in the field, with its partners taking around 10%-20% each. Deutsche Bank argues that the net present value of the field is around $10bn, given that as much as $25bn may need to be spent developing it.
Conoco and Chevron are understandably arguing that Gaz-prom needs a US partner if it wants to export the gas to the US. A source said: “If it is going to be a long-term player in the US, it’s better to have a US partner. If you look at the geopolitics, it’s stacked against Total.”
Conoco is emphasising its dominance of the US gas market, while Chevron will argue that the sophisticated US trading system means all that is necessary is access to a well-positioned terminal. Conoco’s 16% stake in Russian oil giant Lukoil may also count against it.
Russian newspapers say Gazprom favours the idea of a Norwegian consortium and a US consortium.
The deal is set to transform Gazprom. In return for its stake, Statoil has offered Gazprom capacity in the Cove Point LNG terminal on the US north-east coast; Total and Chevron have offered capacity in the Sabine Pass LNG terminal in Louisiana; and Conoco has offered capacity in Texas’s Freeport LNG terminal. Total and Statoil are offering stakes in the Snohvit LNG plant in the Norwegian Barent’s Sea, due to begin exporting to the US and UK in 2007.
The deal could also bring Gazprom to its goal of delivering 10bn cubic metres (bcm) of gas to the UK by 2010, up from 4bcm last year.
Norsk Hydro has offered Gazprom as much as 10% of its Ormen Lange field, which will next year start piping 20% of the UK’s gas supplies. And Gazprom’s gas supplies to the UK could be greater still if Total also offers some of its Alwyn gas field, or Conoco and Chevron offer part of their Britannia field. read more

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International Herald Tribune: Russia re-energized by its natural resources

By Andrew E. Kramer International Herald Tribune
SUNDAY, APRIL 9, 2006
MOSCOW: So many Western energy companies are in talks this spring with Gazprom, the Russian state-owned natural gas monopoly, that executives were lined up across the lobby of the headquarters on a recent afternoon. Fiddling with scarves and hats, representatives of a U.S.-based international oil company and a large German bank waited impatiently at the coat check amid the crowd.
Gazprom is in talks with at least five Western companies and the governments of China, Israel and the United States as it expands beyond its traditional market in Europe to become a worldwide energy supplier.
In Moscow on Feb. 12, President Vladimir Putin pulled the U.S. Treasury secretary, John Snow, from a finance ministers' meeting, to tell him Russia aspired to be the third-largest energy exporter to the United States by 2010.
In the frenzy of deal-making with Asian, European and North American companies, analysts see a broader ambition by half a dozen state and private operators to leverage Siberia's oil and natural gas riches to win assets overseas – and a wider role for Moscow as a power broker in world energy markets.
“There's the spirit that it is morning again in Russia,” Thane Gustafson, a senior analyst at Cambridge Energy Research Associates, said. “What is the one thing the Russians have in hand as a trump card? They have energy resources and location.”
Situated 550 kilometers, or 330 miles, north of Murmansk in the Barents Sea, the Shtokman natural gas field is well positioned for exports to the U.S. eastern seaboard and is expected to be the largest energy deal to close in Russia this year. Gazprom is expected to announce the field's consortium partners this month. Entry will not be cheap: Initial investments are likely to exceed $10 billion.
The prize is a minority stake in a reserve of 3.6 trillion cubic meters, or about 127 trillion cubic feet, of natural gas, equivalent to seven times the annual consumption of EU member states.
In September, Gazprom announced a short list of possible partners, including Chevron and ConocoPhillips of the United States, Norsk Hydro and Statoil of Norway, and Total of France. But the negotiations are not all about money, say bankers and energy executives involved. A chief aim for Gazprom is to use domestic reserves to build its international profile.
For example, Reuters has reported that Total, regarded by analysts as a long-shot contender, is offering to trade Gazprom its stakes in Norwegian offshore fields and the Sabine Pass terminal in the Gulf of Mexico for reconverting liquefied natural gas, in return for a 20 percent stake in the Shtokman project.
And if Shtokman's output is converted to liquefied natural gas, or LNG, for shipment to the United States, Gazprom has said it wants U.S. companies to help it gain access to American pipeline networks. Analysts point to the German model, in which Gazprom operates with local joint ventures to process the gas on its arrival. Gazprom's stated ambition is to become a household name in the United States as Shtokman begins producing in 2012.
Trading Russian reserves for international assets has a precedent in recent deals. A strategic partnership in 2004 between Lukoil and ConocoPhillips, the third-largest U.S. oil operator after ExxonMobil and Chevron, gave Conoco access to reserves in the northern Timan-Pechora Basin in northwestern Russia and to a private terminal on the Barents Sea.
In return, Conoco agreed to help Lukoil retain its production-sharing agreement in the huge West Qurna-2 field in U.S.-occupied Iraq.
Another keenly awaited energy deal this year is the initial public offering of stock in Rosneft, the state-owned oil company. At the same time, Rosneft is also in talks with Chinese companies to open a network of gasoline stations in that country, in exchange for selling a 5 percent to 10 percent stake in Rosneft to the Chinese at a set price during the IPO, said Alex Kormshchikov, an oil and natural gas analyst at UralSib, a brokerage company in Moscow.
Rosneft's capitalization is estimated at about $60 billion, which would value the possible Chinese share at $3 billion to $6 billion.
From Sakhalin Island, Russia plans to become a player in the market for liquefied natural gas in the Pacific Ocean. The Sakhalin-2 liquefied natural gas project, billed as the world's largest LNG plant and led by Shell and Mitsubishi of Japan, is nearing final approval for financing. The European Bank for Reconstruction and Development is expected to decide this spring on a $300 million loan for the $20 billion development. Sakhalin-2 has been slowed by concerns over its impact on migrating western gray whales, Steller sea lions and salmon spawning grounds, and the EBRD loan is being closely watched as a test of the project's ecological acceptability, after a declaration by the bank in December that it was environmentally and socially “fit for purpose.”
With reserves of 4.5 billion barrels of oil and natural gas, the project could allow Russia to ship liquefied natural gas to regasification plants in Baja California, Mexico, for pipeline transportation to the U.S. West Coast, sidestepping environmental concerns there that are holding up plans for the construction of U.S. ports capable of offloading natural gas.
Indian and Japanese oil companies, meanwhile, are also jostling for Sakhalin's offshore reserves as Russia diversifies its Pacific export markets, while farther north, Rosneft has partnered with South Korea's state oil company for a development on the western shelf of the Kamchatka Peninsula.
China, too, has been prodding Russia into action. When Putin visited China in March, China National Petroleum promised to pay $400 million to Transneft, the Russian state-owned oil pipeline company, for design work on a planned spur from the 1.6 million-barrel-a-day Eastern Siberia-Pacific Ocean pipeline, which received final environmental clearance from the Russian authorities in March. Russia also agreed to build two natural gas pipelines to China with a combined annual capacity of 68 billion cubic meters.
Russia being Russia, however, a dispute remains unresolved between Gazprom, the pipeline operator, and TNK-BP, which controls the Kovytka field near China that would supply the gas for one of the pipes.
Amid the swirl of high-stakes deals, the traffic jam of energy executives in the lobby at Gazprom's headquarters is likely to keep getting worse. read more

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THE NEW YORK TIMES: Oil Prices Slide As Traders Take Profits

By THE ASSOCIATED PRESS
Crude oil futures fell as traders took profits after the contract briefly topped $68 a barrel in the previous session for the first time in more than two months.
Markets on Friday also took heart from optimistic comments by an oil company executive about restoring production in Nigeria.
Light, sweet crude for May delivery on the New York Mercantile Exchange lost 55 cents to settle at $67.39 a barrel. May Brent at London's ICE Futures exchange fell 55 cents to close at $67.29 a barrel.
''What the market has found is that the $68-level has a rather strong resistance, and so the contract is now retreating slightly on profit taking,'' said energy analyst Victor Shum of Purvin & Gertz in Singapore.
Crude oil prices had risen since U.S. government data released this week showed domestic supplies of gasoline shrank by 4.4 million barrels last week to 211.8 million barrels. That has further driven concerns about summer supplies, even though the stockpile was roughly in line with year-ago levels.
The decline in refined products comes as refineries temporarily shut down operations for maintenance. Vienna's PVM Oil Associates said production output was 120,000 barrels a day lower than the week before.
''The drawdown is uncomfortable to some traders but when refineries return after maintenance, I'm sure they'll produce the products to get ready for summer,'' Shum said. ''The threat to U.S. product supply is driving the market but it's not disrupting anything yet.''
Nymex May gasoline futures fell 2.33 cents to finish at $1.9766 a gallon while heating oil fell less than a penny to close at $1.8826 a gallon. Natural gas futures declined 22.9 cents to settle at $6.743 per 1,000 cubic feet.
U.S. crude oil inventories increased by 2.1 million barrels last week to 342.8 million barrels, or almost 8 percent above year-ago levels. But tension between the West and Iran and violence in Nigeria continued to support prices.
In Nigeria, about 27 percent of output has been knocked out by militant attacks in the Niger Delta region. Militants have pledged more attacks to get southerners a bigger cut of the oil revenues held by the federal government. The country usually produces 2.4 million barrels a day.
Oil company and Nigerian officials said Friday they were optimistic that oil production would recover as soon as next week.
Malcolm Brinded, Royal Dutch Shell PLC's executive director of exploration and production, said some 455,000 barrels a day of its joint-venture output in Nigeria remained locked down.
However, ''after the meeting the (Nigerian) president held this week, I'm very optimistic we'll be able to go and review the assets in the near future,'' he said at an oil conference in Paris.
The head of the International Energy Agency said Friday that he saw no need to release government-held strategic oil stocks, despite high prices.
''There's no lack of supply for the time being,'' said Claude Mandil, who leads the oil security watchdog for the Organization for Economic Cooperation and Development. ''If there's any disruption'' in oil flows ''due to political problems, we will consider using the stocks.'' read more

shellplc.website and its sister non-profit websites royaldutchshellplc.com, royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are owned by John Donovan. There is also a Wikipedia feature.

Allentown Morning Call, PA: Chevron to spend billions to boost oil and gas output

By Andrew Leckey
Posted April 9, 2006
Q: A lot of my retirement money is in Chevron Corp. stock. I thought it would be doing even better because of high oil prices. How does it stack up against the competition?
B.B.
A: With oil companies pumping out tremendous profits, the bigger they are, the greater their exploration, production and profit potential.
This No. 2 U.S. oil company, resulting from a merger with Texaco in 2001 and the recent $18 billion acquisition of Unocal Corp., certainly ranks as ''big oil.'' Its $14.1 billion profit last year was the second consecutive record year for the firm.
Yet some of its competitors are even ''bigger oil,'' a select club that includes this country's Exxon Mobil Corp. and overseas powerhouses BP PLC and Royal Dutch Shell PLC.
Chevron has had difficulty raising its oil output and coming up with new energy reserves to replace what it produced. It recently forecast that its 2006 output would be lower than the earlier projection it had made, due to damage from last summer's Gulf of Mexico hurricanes.
Shares of Chevron (CVX) are up 3 percent this year, following gains of 8 percent last year, 22 percent in 2004 and 30 percent in 2003. Their last annual decline was 26 percent in 2002.
Acknowledging its challenges, management recently pledged to Wall Street analysts that its oil and natural gas production will increase 24 percent, to 3.1 million barrels per day, by 2010. It will spend $15 billion to $16 billion annually through 2008 to accomplish this.
As part of its worldwide exploration, Chevron recently acquired oil leases for 180,000 acres in Alberta, Canada, where it believes 7.5 billion barrels of oil are located. It owns a 20 percent stake in exploration areas nearby.
At its current stock price, consensus analyst rating on Chevron is a ''buy,'' according to Thomson Financial. That consists of eight ''strong buys,'' four ''buys,'' nine ''holds'' and one ''underperform.''
The greatest oil company risk is low pricing due to oversupply. Other concerns are government scrutiny of industry profits, political unrest in production regions and environmental problems. Chevron had to clean up 31,000 gallons of fuel oil spilled into a waterway off New York Harbor this year.
Earnings are expected to rise 14 percent this year, versus 10 percent forecast for the major integrated oil and gas industry. Next year's projected 4 percent decline compares with the 3 percent decline expected industrywide. The firm's five-year annualized growth rate of 6 percent is in line with peers.
Andrew Leckey is a Tribune Media Services columnist. E-mail him at [email protected]
Copyright © 2006, The Morning Call read more

shellplc.website and its sister non-profit websites royaldutchshellplc.com, royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are owned by John Donovan. There is also a Wikipedia feature.

UK Indymedia: Rossport Five send Shell to Hell in Mayo, Ireland….again!

emma | 07.04.2006 23:03 | Ecology | Globalisation | Social Struggles
This is the latest twist in the fight between Shell, Statoil and the Irish Government, and Rossport, County Mayo, on the West Coast of Ireland, over corrupt plans to build a ludicrous gas pipeline through the area.
This is a campaign that has won significant victories. Shell was supposed to have already built the pipeline last year, the blockading by local people of the pipeline and refinery site effectively meant that no building has occurred since last summer. There is massive local, national and international opposition to this project. Shell and its partners must be stopped, and they will be stopped here, on the west coast of Ireland.
The five men were imprisoned for contempt of court and jailed indefinately last year, for refusing to allow Shell access to their land to build the pipeline. The decision today vindicates the people of County Mayo, have had to live with the prospect of this dangerous pipeline and the environmental and social catastrophe that is causing in their lives, for over six years. This is a battle won, but there is still the main war to fight. At the beginning of this week, Shell's contractor tried to gain entry to the Bellanaboy site, but was turned back by a local blockade.
http://www.indymedia.ie/article/75228
Today, in Dublin…
The Rossport 5, Micheál Ó Seighin, Willie Corduff, Brendan Philbin, and Philip and Vincent McGrath were brought before the Irish courts again today to receive the final judgement from Justice Joseph Finnegan, the President of the High Court.
The five were imprisoned last year for three months, for refusing to obey his order to cease protesting against the scheme by Shell and Statoil to install a dangerous, experimental, raw-gas pipeline through their village.
Read the full story here: http://www.indymedia.ie/article/75307
The men stressed that their imprisonment, and the trauma caused to their families and communities, was only one chapter in the struggle to free Mayo of the blight of Shell's scheme to exploit the Corrib gas find by processing the raw fuel at a giant refinery , rather than off-shore, which is normal practice. The campaign against the pipeline is set to continue, even stepping up a gear now.
To read more about the campaign, go to:
http://www.shelltosea.com
http://www.corribsos.com
Many protesters, then travelled to the Statoil building in Dublin, where they attempted to deliver a section of the controversial pipeline back to the company.
Full story (this looks like fun!!!): http://www.indymedia.ie/article/75308
There is a solidarity camp in Rossport on the west coast of Ireland, for supporters and activists to come and support the locals with their campaign to send Shell to Hell.
Read more about the camp here: http://www.struggle.ws/rsc/
There are several of us in the UK who have stayed at the camp and who are planning to go back out there soon. Please get in touch if you are interested in travelling out, as we share travel. Also, they are in need of donations, here is their wish list:
http://www.struggle.ws/rsc/wishlist.htm
Shell to Sea!
Shell to Hell!
emma
e-mail: [email protected] read more

shellplc.website and its sister non-profit websites royaldutchshellplc.com, royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are owned by John Donovan. There is also a Wikipedia feature.

The Sunday Times: Shell’s Rossport spin doctor calls for alternative pipeline

Aine Ryan
A SPIN DOCTOR appointed to improve Shell’s image in Mayo, where it is engaged in a long-running battle to bring gas onshore, has predicted that its pipeline will never run through Rossport.
Christy Loftus, recently appointed as external affairs adviser by Shell, has advised his employers to start looking for alternative routes. “I’ve told Shell that I believe the pipeline will never be laid along that route, and I think they are listening to me,” he said.
But the former Western People journalist has also warned that attempts by Shell to Sea, a protest group, to have the gas processed offshore will never be considered by the company because of the economic implications.
Loftus, who is attending Irish classes to improve his ability to communicate with locals, admits he has made little or no progress since his appointment in February.
In early March, he sent letters to the Rossport Five, the five men who are objecting to the construction of the pipeline through Rossport, and a number of Shell to Sea activists, suggesting informal meetings. He has received no replies.
Maura Harrington, a Shell to Sea spokeswoman who is a gaelgoir and teacher, said she had considered acknowledging Loftus’s letter with a “fuaireas do litir”. This is traditional civil service speak for “I got your letter, but don’t want to know”.
Other locals are scathing about Loftus and another public relations appointee, retired chief superintendent John Carey, from the Belmullet area.
Last Friday, the president of the High Court ruled that the Rossport Five should not have to serve any more time in jail for their contempt of court after their protests prevented Shell from carrying on its business in Mayo. The court took into account that they had served 94 days in prison last year. They were released last September when Shell lifted the injunction against them. Shell was awarded costs.
Loftus said he was relieved that Judge Finnegan did not return the men to jail. “It would have been a public relations nightmare for Shell. The reality is, there will be no progress until these men sit across a table from Shell and negotiate. I see that as the only way forward,” Loftus said. The Rossport Five are now concerned that Shell will pursue them for costs. “We may have to go to jail again,” said Willie Corduff, one of the five, yesterday.
Shell confirmed its legal team will review Friday’s ruling on costs. “We will urgently seek clarification on this matter,” said a spokeswoman.
Loftus has been given a three-year contract and is paid €58,000 per annum. He says that during his interview with Shell he was “uncompromising and confrontational”, and told the company he wouldn’t defend their mistakes and wouldn’t be their apologist or spin doctor in north Mayo.
Morale remains high among anti-Shell protesters, Harrington said. The Rossport Solidarity Camp was reopened at the beginning of the month after many of its members spent the winter on lecture tours around England and Europe espousing the cause. “All we need now is our first camp baby,” said Harrington.
Mary Corduff, wife of one of the Rossport Five, said it was typical of Shell’s cynicism to use Mayo natives in an attempt to drive a wedge among the people. “The only people Shell feels sorry for is themselves,” said Corduff.
Loftus says he has a clear conscience about his new position. He said he has supported the Shell development from the outset and believes it will bring economic benefits to the county. “However, if I were in the shoes of the any one of the Rossport Five and I had safety concerns about a gas pipeline running close to my house, I would have acted in the same way,” he said. read more

shellplc.website and its sister non-profit websites royaldutchshellplc.com, royaldutchshellgroup.com, shellenergy.website, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net and shell2004.com are owned by John Donovan. There is also a Wikipedia feature.